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Bookkeeping quiz

Financial Accounting Quiz

Bookkeeping quiz ⇒ The questions change when you repeat the exam

Pass Score 70%

 

Bookkeeping

Multiple-choice questions and answers

Pass Score 70%

1 / 30

Real accounts include :

2 / 30

Prepaid expenses relate to :

3 / 30

Bookkeeping is a part of :

4 / 30

Contra entry affects :

5 / 30

Bills receivable are :

6 / 30

Outstanding expenses are :

7 / 30

An increase in expenses is recorded as :

8 / 30

Cash discount affects :

9 / 30

Business entity concept means :

10 / 30

Trial balance has :

11 / 30

The ledger is also known as :

12 / 30

Cash transactions are recorded in:

13 / 30

Error of principle occurs when :

14 / 30

Which account is debited when cash is received ?

15 / 30

Which book records credit sales ?

16 / 30

Rectification before trial balance uses :

17 / 30

Which document is used to record transactions first ?

18 / 30

Which account normally has a credit balance ?

19 / 30

Purchase returns reduce :

20 / 30

Personal accounts relate to :

21 / 30

Trial balance is prepared to:

22 / 30

Which system records each transaction twice ?

23 / 30

Discount allowed is recorded on :

24 / 30

Gross profit is calculated in :

25 / 30

A cash book serves as :

26 / 30

Bills payable are :

27 / 30

Depreciation is charged to :

28 / 30

Which is a nominal account ?

29 / 30

Petty cash is used for :

30 / 30

Which account is credited when goods are sold on credit ?

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Bookkeeping is one of the oldest and most fundamental functions in financial accounting. It serves as the backbone of every accounting system, ensuring that financial information is accurately recorded, organized, and made available for decision-making. Without proper bookkeeping, businesses would struggle to track their financial performance, manage resources effectively, or comply with regulatory requirements. Although often considered routine or clerical, bookkeeping plays a critical strategic role in business sustainability and growth.

Definition and Purpose of Bookkeeping

Bookkeeping is the systematic recording, organizing, and maintaining of financial transactions of a business or organization. It involves documenting all financial activities, including sales, purchases, receipts, and payments. These records form the basis for preparing financial statements such as the income statement, balance sheet, and cash flow statement.

The primary purpose of bookkeeping is to create a reliable financial record that reflects the true financial position and performance of a business. This information enables business owners, managers, investors, creditors, and regulators to make informed decisions. Bookkeeping ensures financial transparency, accountability, and compliance with accounting standards and tax regulations.

Role of Bookkeeping in Financial Accounting

Financial accounting focuses on summarizing financial data into reports used by external stakeholders. Bookkeeping supports this process by ensuring that all financial transactions are accurately recorded before being summarized.

The relationship between bookkeeping and financial accounting can be summarized as follows:

  1. Bookkeeping records transactions.

  2. Accounting analyzes and interprets these records.

  3. Financial reports are prepared based on accounting analysis.

Without accurate bookkeeping, financial accounting cannot produce reliable financial statements.

Key Bookkeeping Principles

Several principles guide bookkeeping practices to maintain consistency and accuracy:

1. Double-Entry Principle
Each transaction affects at least two accounts, with debits equaling credits.

2. Consistency Principle
Bookkeeping methods should remain consistent over time to allow meaningful comparison.

3. Accuracy Principle
Transactions must be recorded accurately and supported by documentation.

4. Completeness Principle
All financial transactions must be recorded without omission.

5. Timeliness Principle
Transactions should be recorded promptly to maintain current records.

These principles ensure reliability and usefulness of financial information.

Bookkeeping Process and Cycle

The bookkeeping process follows a structured cycle that repeats regularly, often monthly or annually. The main steps include:

1. Identifying Transactions
Financial events such as sales, purchases, expenses, or receipts are identified.

2. Recording Transactions
Transactions are recorded in journals using the double-entry method.

3. Posting to Ledger Accounts
Journal entries are transferred to individual ledger accounts.

4. Preparing Trial Balance
Balances of all accounts are summarized to check debit-credit equality.

5. Adjusting Entries
Adjustments are made for accrued expenses, depreciation, and prepaid items.

6. Financial Statement Preparation
Financial statements are prepared based on adjusted account balances.

7. Closing Entries
Temporary accounts are closed to begin a new accounting period.

This cycle ensures financial records remain organized and accurate.

Types of Bookkeeping Systems

Businesses may use different bookkeeping systems depending on size and complexity.

Single-Entry Bookkeeping
This simple system records only cash inflows and outflows. It is suitable for small businesses but lacks detailed financial insight.

Double-Entry Bookkeeping
This method records both debit and credit effects of transactions, providing a complete financial picture and supporting financial statement preparation.

Most modern businesses use double-entry bookkeeping due to its reliability and accuracy.

Key Books and Records in Bookkeeping

Several books and records are used in bookkeeping:

Journal
The primary record where transactions are first recorded chronologically.

General Ledger
Contains all accounts showing transaction history and balances.

Cash Book
Records cash receipts and payments.

Sales and Purchase Books
Record credit sales and purchases.

Accounts Receivable Ledger
Tracks amounts owed by customers.

Accounts Payable Ledger
Tracks amounts owed to suppliers.

Maintaining these records allows businesses to monitor transactions efficiently.

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